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Income Contingent Loans for Higher Education and Beyond

In: Income Contingent Loans

Author

Listed:
  • María Racionero

    (The Australian National University)

Abstract

The role of income contingent loans (ICLs) as a risk-management device is being increasingly emphasized. Many countries have adopted ICLs to finance higher education and alternative uses have been proposed. In this chapter I first outline the main features of existing ICL schemes for higher education and discuss alternative designs. I then identify issues to be addressed when considering novel applications. Many existing ICL schemes for higher education imply large implicit subsidies: the interest rate is often highly subsidised and the shortfall from non-repayment is typically financed from general taxes. Increasing the share of the cost borne by successful graduates could help alleviate the negative consequences of current designs, but the extent to which this is feasible depends on whether there are significant moral hazard and adverse selection effects. These problems have traditionally seemed relatively minor in the higher education context but could be quite significant for some of the proposed applications.

Suggested Citation

  • María Racionero, 2014. "Income Contingent Loans for Higher Education and Beyond," International Economic Association Series, in: Bruce Chapman & Timothy Higgins & Joseph E. Stiglitz (ed.), Income Contingent Loans, chapter 19, pages 223-237, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-137-41320-8_20
    DOI: 10.1057/9781137413208_20
    as

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